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3M Company’s MMM first-quarter 2023 adjusted earnings (excluding 21 cents from non-recurring items) of $1.97 per share surpassed the Zacks Consensus Estimate of $1.60. The bottom line declined in double digits year over year due to the exit of the company’s Russia operations and a 3.4 percentage point headwind from the decline in disposable respirator demand.
3M’s net sales of $8,031 million outperformed the Zacks Consensus Estimate of $7,635 million. However, the top line declined 9% year over year due to an adverse foreign currency impact of 2.8% and a 1.3% negative impact from divestitures. Organic sales fell 4.9%.
Region-wise, sales in the Americas decreased 0.9% year over year, while that in the Asia Pacific declined 21.3%. Sales from business in Europe, the Middle East and Africa declined 10.4%.
3M Company Price, Consensus and EPS Surprise
3M Company price-consensus-eps-surprise-chart | 3M Company Quote
Segmental Results
The company reports top-line results under four business segments — Safety & Industrial, Transportation & Electronics, Health Care and Consumer.
Revenues from Safety and Industrial totaled $2,779 million, decreasing 8.9% year over year. The decline was attributable to a 2.9% negative impact from movements in foreign currencies. Organic sales declined 6% in the segment.
Revenues from Transportation & Electronics totaled $2,050 million, reflecting a year-over-year decrease of 12.4%. The decline is attributable to a 3.4% adverse impact from movements in foreign currencies. Organic sales declined 8%.
Revenues from Health Care were $2,010 million, down 5.6% year over year. The results were hurt by 2.7% impact from adverse foreign currency translation, partially offset by 1.4% organic sales growth.
Revenues from Consumer fell 9% year over year to $1,192 million. Organic sales decreased 6.8%. Movements in foreign currencies had a negative impact of 1.9%.
Margin Profile
In the quarter under review, 3M’s cost of sales decreased 4.4% year over year to $4,613 million. Selling, general and administrative expenses declined 9.4% to $1,705 million. Research, development and related expenses dipped 1.7% to $472 million.
The company’s adjusted operating income in the quarter dropped 26.6% year over year to $1,376 million. The adjusted operating margin was 17.9% compared with 22% in the year-ago quarter. The adjusted tax rate in the quarter was 17.7% compared with 17.5% in the year-ago quarter.
Balance Sheet and Cash Flow
Exiting the first quarter, 3M had cash and cash equivalents of $3,824 million compared with $3,655 million at the end of December 2022. Long-term debt was $12,948 million at the end of the first quarter compared with $14,001 million at the end of December 2022.
In the first quarter, 3M generated net cash of $1,275 million from its operating activities, reflecting an increase of 26.1% from the year-ago quarter. Capital used for purchasing property, plant and equipment increased 12% to $475 million in the first quarter.
Adjusted free cash flow at the end of the first quarter was $946 million, up 24% year over year. Adjusted free cash flow conversion was 87% at the end of the same period.
In the first quarter, 3M rewarded its shareholders with dividend payments of $827 million, down 2.9% year over year. The company bought back shares worth $29 million in the same period.
Restructuring Actions
3M is undertaking restructuring actions to reduce costs and improve margins and cash flow in the long term. The organizational restructuring will impact approximately 6,000 positions globally. This is in addition to the reduction of 2,500 global manufacturing roles announced this January.
The restructuring actions are expected to yield annual pre-tax savings of $700 million-$900 million for MMM. Simultaneously, the company expects total pre-tax charges of $700 million-$900 million (inclusive of previous actions announced in January 2023) as a result of these actions.
2023 Outlook Intact
3M has reiterated its 2023 guidance. The company continues to expect adjusted total sales to decline 2-6% year over year. Adjusted organic sales are anticipated to decline up to 3% year over year or remain flat.
3M estimated adjusted earnings of $8.50-$9.00 per share for 2023. The mid-point of the guided range — $8.75 — lies above the Zacks Consensus Estimate of $8.63.
Adjusted operating cash flow is expected to be $5.8-$6.3 billion for the current year. Adjusted free cash flow conversion is predicted to be 90-100%.
Zacks Rank & Key Picks
3M carries a Zacks Rank #3 (Hold).
Some better-ranked stocks within the Conglomerates sector are as follows:
General Electric GE currently sports a Zacks Rank #1 (Strong Buy). The company pulled off a trailing four-quarter earnings surprise of 27.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.
The Zacks Consensus Estimate for General Electric’s current-year earnings has been revised upward by 3.1% in the past 60 days. The stock has rallied 11.4% in a year.
Honeywell International HON currently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter earnings surprise of 2.9%, on average.
The Zacks Consensus Estimate for Honeywell’s current-year earnings has remained steady in the past 60 days. The stock has gained 2.6% in the past year.
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General Electric Company (GE) : Free Stock Analysis Report
Honeywell International Inc. (HON) : Free Stock Analysis Report
3M Company (MMM) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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